Dairy product prices fall to five-year low

Wednesday 19th November 2014

Dairy product prices fell in the latest Global Dairy Trade auction to the lowest level in more than five years, led by declines in rennet casein and skim milk powder.

The GDT average winning price slid 3.1 percent to US$2,561, the lowest level since August 2009, down from US$2,649 two weeks ago. Some 39,613 tonnes of product was sold, down from 45,499 tonnes of product two weeks ago.

In the latest GDT auction, rennet casein sank 12.2 percent to US$6,681 a tonne, while skim milk powder dropped 5.7 percent to US$2,299 a tonne. Whole milk powder fell 5.1 percent to US$2,400 a tonne.

Anhydrous milk fat climbed 6.1 percent to US$3,490 a tonne, and butter gained 6.0 percent to US2,656 a tonne. Cheddar rose 5.0 percent to US$2,861 a tonne, while butter milk powder rose 1.4 percent to US$2,511 a tonne.

“Milk fat products such as butter and cheese did improve but this did not offset the fall in milk powder prices which are traded in larger volumes than the fat products," AgriHQ dairy analyst Susan Kilsby said in a statement.

"The market for skim milk powder is being weighed down by the expectation that global milk flows will remain strong for some time to come and this negative sentiment is also spilling over into the market for whole milk powder.”

The price for sweet whey powder was not available, indicating that the product was not offered, not sold or sold at the starting price, and therefore GDT cannot publish the winning price.

Lactose was not offered at the event.

The AgriHQ Seasonal Farmgate Milk Price for the 2014-15 season has decreased by 20 cents to $4.55 per kilogram milksolids following the GDT auction. This compares to Fonterra’s current forecast for the season of $5.30/kgMS which is scheduled to be reviewed in December.

The AgriHQ Snapshot Farmgate Milk Price indicates that if the latest Global Dairy Trade prices were achieved across the entire season this would equate to a milk price of $3.70/kgMS, a 25 cent fall from the previous auction.

The New Zealand dollar traded as low as 79.30 US cents at 10:07am in New York, and recently traded at 79.42 US cents. Earlier in the day, at 9:22am in New York, the kiwi had traded around 79.73 US cents.

The softening in skim milk powder prices is being driven by strong milk production in both Europe and the United States. Farmgate returns in the US remain high as milk prices in this market have been bolstered by the strength of their own domestic dairy market. Prices in the US are beginning to ease but it will be several months before milk prices drop to a level that will slow milk production.

The recovery in dairy commodity prices is expected to be protracted, according to Kilsby. On the NZX Dairy Derivatives market, the later dated whole milk powder futures contracts are now priced lower than they were a fortnight ago. Whole milk powder futures prices remain below US$3,000 per tonne throughout the 2014-15 milk production season.

“The main factors used in the calculating the AgriHQ Seasonal Milk Price are all moving against New Zealand farmers," Kilsby said. "Dairy commodity prices dropped at the auction last night, the expected recovery in dairy commodity prices has also slowed and the New Zealand dollar has strengthened which further erodes returns in local currency terms."

There were 134 winning bidders out of 173 participating bidders at the 13-round auction. The number of qualified bidders rose to 676, up from 672 at the last auction.

BusinessDesk.co.nz

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